Tretiak:
Welcome to the fray!
Just to throw another wrench in, I think taxing corporations is a load of crap. I see a couple of posts where people talk about companies sucking the government teet with enterprise zones, etc. Nonsense! Don’t kid yourself; corporations pay way more to the government than they take back in benefits. The government creates enterprise zones and such to incent corporations to come to their state and create jobs.
tretaik: welcome! but you have bought into a “big lie”, ie, the taxes on dividends are “taxed twice”. Nope, they are taxed dozens of time, AND SO IS EVERY OTHER DOLLAR OF INCOME. Dividend: Corp earns $$, pays taxes on $$, and then pays out in dividends to investor, who pays taxes on , right? Well, your company pays YOU right? And then you pay taxes on that, right? But when you spend it at the electronic store, they pay taxes on YOUR $$, that you have paid taxes on, and then they buy gasoline for their truck with your $$, which YOU paid taxes on, and the store paid taxes on, and now Chevron pays taxes on it, then they pay it out to invstors, who pay taxes on it, who then spend it on $500 btls of wine, then the winery pays taxes on THAT…
Corporate taxes are there to make sure that multimillionaires pay SOME taxes on something. If you don’t want to pay corp taxes, you do a S corp, then the profits roll over to the owner/investors who pay the taxes. But the BIG money wants to run the corps as they are, as there is significant tax advantages to doing so. Do you really think companies are run for the benefit of the SHAREHOLDERS? snort, gasp, koff…
Consumption Tax? and how would we administer THAT, pray tell? “Sir, you just ate a Mcdonalds Big Mac Supersized, so you owe, umm, let’s see here, .57" "Hey, did you notice I only ate half my fries?" "Oh? So let me see, well looks more like you ate 5/8th, so you tax is .54” :rolleyes:
Now, let me see, hmm, well, EVERY industrialized modern country has an Income tax, but NONE have a “consumption” tax. Yep, sounds like we should pitch out the old IRC, and start over. :rolleyes:
Danielinthewolvesden wrote
No, dude. The reason you do an S corp is if you as a person are raking this year. Then you can take deductions in the corporation and use them against your personal income. If you roll in the opposite direction, you’re likely to pay more taxes.
Of course they are. There are extensive laws in place to ensure that they are. Who are you suggesting they are really benefitting?
The Executives, esp the CEO’s, Presidents, and BoD. they don’t give a brass farthing about the “little guy” shareholder. Do you really think the shareholders want the CEO paid MILLIONS per year? Oh, sure, after they all vote themselves big salaries, stock options & golden parachute, if there is anything left over, they hand it out. But they get theirs, 1st, even if the Co is tanking.
The IRS frowns on taking personal deductions on your corp return. If you are REALLY raking it in, you want a C corp, as they will have a lower tax %, unless you’re losing $$, in which case you want a partnership or S corp. If you have a low personal tax rate, then a S corp could be better way to handle profits. There are arguements both ways, but in fact, if corp taxes were such a horrible thing, there would be a LOT more Parterships & S corps.
Danielinthewolvesden wrote
No, no, no. Anymore, the CEO and the rest of senior management are compensated almost entirely in stock options. As such, they are - get ready for this - shareholders! I.e. it’s in their best interest to increase the value of the shareholders. It’s a great little scheme to ensure the shareholders get respect, don’t you think?
If you have a C corp, you absolutely can’t take personal deductions. If you have an S corp, you must; there’s no choice. With a C corp, you are two different entities, with separate income, expenses and taxes. If you are an S corp, your profit/loss as a shareholder of the corp (typically the only shareholder) goes directly onto your 1040, where it parties with your personal income and deductions. Trust me, I’ve been here. Or don’t trust me; go check out IRS form K-1 (Shareholder’s Share of Income, Credits, Deductions, etc.), line 17 of 1040 (S Corporations), and Schedule E (Income or Loss from Partnerships and S Corps).
If you are personally making money (I believe that’s what you’re saying here), you can absolutely not mix and match that money with C corp money. The two entities (you and the corp) must be distinct, and there can’t even be a hint of impropriety. And if there are other shareholders in addition to yourself (as there typically are), it’s even more important, because then you’re open to future shareholder lawsuits. Plus, if you have hopes of going public later, there’ll be a full audit of everything for the entire life of the corp by a reputable firm, and if there’s ugliness, it’ll be found.
As I say, this isn’t theoretical for me. I’ve managed (and now manage) a few corporations.
I understand none of this…too much math involved. But I do understand on thing The Ryan said…
Quote…I agree that it easier for the rich to keep their wealth, but I think that is just the way it is and doesn’t bespeak of any unfairness. Besides which, that it already reflected in there not being any income tax below a certain level. As for institutional factors making it “nigh impossible” for the poor to save money, I disagree. If you look at most of the poor, you will see that the major factors keeping them from moving up are decidely non-institutional: dropping out of school, early marriage, divorces, illegitimate children, too many children, drug abuse, etc.
You and old Zambezi have a lot in common I’d be willing to bet you both listen to the same “talk radio show”.
Needs2know
Daniel,
Of course, dollars get taxed over and over again. But that is for economic activity in general and not for simply the transfer of money. Paying of dividends is not economic activity it is just distributing out income to the owners of the income. It is almost as if you were forced to pay taxes every time you withdrew money from the bank. Corporate income IS the shareholders income.
As for a consumption tax. In fact many countries do not use an Income Tax as their primary source of revenue. Many use what is known as a Value Added Tax (VAT) which is quite similar to consumption tax. If you buy some wood and materials for $30 and make a table and turn around and sell it to a local shop for $50 then that $20 is taxed. They then turn around and sell it for $75 and that $25 is taxed.
Adn you take the concept of consumption too literally. You would be taxed on what you paid for consumption, not some silly idea like eating only half your fries. In THEORY this is not a problem because you can only do two things with income, spend it or save it. So if you have wealth of X1 at the begininning of year 1 and wealth of X2 at the beginning of year 2 and you Earned I (including labor and capital income) during year 1, then you consumed C = (X1-X2) + I. C can be taxed at any kind of progressive schedule you like, can include exemptions, deductions, credits or anything else an income tax can use.
Of course this may seem like it might be incredibly difficult to do, but I am not convinced that it is. And it isn’t like income has proven to be a cake walk. Just look at the complicated tax code to tax income. My point was not that we necessarily should use a consumption tax, but that in discussing fairness and other issues you may want to consider the tax base as well.
quote:
Given that this is true (and I agree) do you feel we should tax them higher as it is "their fault" they are poor. Actually I do want to point out that your observations are correlational not causal either...could be being poor, and thus depressed, brings about each of these circumstances (in particular the drug abuse I could see as working in the other direction). Mabey if they had more $$$ they would choose a different life path?
REgarding those who posted on taxing corps, I can not see removing taxes from corps. I would be curious to see what % of taxes come from corps (forgive me if I missed it in an earlier post). Corps are pofit making machines, designed to make money above all else. I do NOT feel bad for them.Don’t even go there Avalon…we all know that the poor and disenfranchized are in this state because they enjoy being that way. They are lazy, unethical, immoral individuals that are content to sit back and let the rest of society give them a handout. Hell, most of the time they demand it!
Needs2know
Just on consumption taxes: there have been proposals for many years (since JS Mill in fact) for a direct, progressive consumption tax. It is possible, and the work showing it could be done dates back to the 1930s work of Irving Fisher, which was extended by Kaldor (a leftie BTW) and Meade in the 60s and 70s.
Anyone interested can look up the report of the (UK) Meade committee from the 70s. It goes into great detail about how such a tax could be administered.
Until the early 1980s most tax economists strongly favored such a tax, but now much of the heat has gone out of the debate for the following reasons:
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It’s bloody hard to explain its advantages to non-economists, let alone how it works.
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The upheaval the transition to expenditure tax would cause would be very large.
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Almost everyone who proposes a direct consumption tax for reasons other than “let’s give the rich a big pile of money” thinks that you would require a small wealth tax to accompany it (for reasons that would probably bore you).
Wealth taxes are just as if not more complex to administer than income taxes, which rather undermines any simplicity benefits of expenditure taxes.
- The major reason most economists favored progressive expenditure tax over income tax was that income tax “double taxes” savings.
Note that “double taxed” does not mean taxed on twpo occasion, it means taxed at a higher rate relative to other activities (and yes the US company tax system arguably has this property, although there has been great debate about its significance since the 1970s)
The savings argument has declined in importance since the 1970s for two basic reasons:
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A global capital market with floating exchange rates means that domestic growth is no longer constrained by domestic savings;
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The empirical literature has thus far failed to show any responsiveness if aggregate savings behaviour to the kind of chnages in return that would result from changing to an expenditure tax.
picmr
Bill said (and Tretiak agreed):
If a corporation is regarded by the law as a “person”, which it is, then why should it not be subject to income tax? If a real live person makes some money and then gives it to you (I presume just making a money gift doesn’t count as “economic activity” either?), you both get taxed on it. Why should corporations have many of the legal rights and privileges of human persons but not the responsibility of paying taxes?
([\b]picmr**, if you can give me an explanation of this I’ll write you another G&S parody if you want! 
Especially if you can tell me how economists in general regard the “legal person” status of corporations.)
Thanks,
Kimstu
Okay, company taxes.
Economists treat the corporation as a veil. The real relationships are behind the veil.
The reason that you can’t treat the company as a real person for tax purposes is that it has no capacity to pay tax. It is a fictional person, not a real one.
First, let’s get away from the notion that paying tax means handing over some cash, or having the legal burden of a tax placed upon you.
A bottle of gin is taxed. Obviously the gin does not pay the tax. The actual burden (incidence) of the tax is borne (mainly) by the person who buys the bottle. Clear message: the incidence of the tax does not have to be borne by the entity upon which it is levied.
Now companies. Since they are not really people, they can’t be better off or worse off: they don’t experience “welfare”. However, those real (natural rather than legal) people who have dealings with the corporate entity can be better off or worse off.
When you get a company to pay tax the actual burden of the tax falls upon (some combination of) the owners of the company (shareholders and/ or debtholders), the employees of the company or the customers of the company, through lower returns, lower wages or higher prices respectively.
Assuming the burden of the tax is borne by shareholders then, the company tax is mainly a way of taxing the returns of shareholders prior to them receiving the return. A bit like withholding taxes on wages.
Note that this is true whether the profits of the company are distibuted in the form of dividends or ploughed back into the company (which benefits shareholder in revaluations of stocks which show up as capital gains).
Then double (really over-) taxation of dividends occurs because the shareholder is not given credit for tax paid on their behalf at the comapny level. In Australia, we have a system of dividend imputation which solves this (to the extent that it really is a problem, which as I noted before, is controversial.)
Company taxes are useful however as a way of taxing capital gains as they accrue, as a withholding tax on dividends and as a way of taxing foreign direct investment.
This may be more than you wanted to know Kimstu, but the essence of it is that only real peop;le can actually bear the buren of tax, not legal entities: the actual burden must be shifted to real (although not necessarily living) people.
picmr
Righto, but why is it that only natural people can bear the burden of tax? I understand why a bottle of gin can’t be taxed directly—it doesn’t have income or assets. But don’t corporations have income and assets? If a corporation is sued and has to pay damages, is that money considered to come from natural persons (stockholders, directors) or from the corporation itself? If a corporation is considered able to bear the burden of legal fees, then why can’t it bear the burden of taxation?
Is there any reason for a corporation to have “legal person” status other than to shield the natural persons associated with it from liability? Is that a good thing?
(So as you see, there’s no need to worry about this being more than I wanted to know! :))
Thanks,
Kimstu
I doubt I can be as articulate sa picmr, but I can try.
The point isn’t that corporations can pay taxes, because clearly they can. But a corporation doesn’t bear any burden. It’s really just a piece of paper. All tax burdens (and benefits) accrue to the stakeholders: shareholders, employees and customers. So in evaluating a tax in terms of both equity and efficiency you need to look at that level.
Needs2Know
quote:
Ouch! I guess I won't expect to bump into you working in any soup kitchens. :p Actually I suspect some of what you are saying is true for some "poor" folk (I myself once talked to a dude who seemed quite proud to be on welfare). I suspect, however, that the factors that make one "poor" are multivariate:
Consider:
I am not sure I agree with your contention that most poor folks are on welfare. I would suspect many of them are trying as hard as they can to work minimum wage jobs.
I further am not sure I agree that everyone on welfare enjoys being on welfare. I do agree some idiots do, but I think many people see it as a blow to their pride (though I admit I might say that primarily because it would be a blow to my pride)
A number of those who are "homeless" are mentally ill, schizophrenic in particular, and generally incapable of holding down a job.
I am not the one to ever ring the bell of white oppression, but it has to be recognized that fewer opportunities exist for those raised in a low SES bracket. I do not think there is a "plot" to keep folks down, just social inertia at play. Some people do pull themselves up by their bootstraps, and they deserve credit for it, though I suspect it takes a strong constitution to do so.
Besides we are not talking about handouts...we are just talking about not taking away what little money the poor have.
Using the word poor may have been faulty (my bad)...I believe the same economic precepts hold for the middle class...I do not believe the middle class (who work hard) can be expected to pay the same percentage burdon as the "upper 6%"Kimstu: what Tretiak said: ignore the self-deprecating disclaimer.
In the case of legal fees or damages claims or whatever - the burden or benefit is borne/ enjoyed by real people. So when a insurance company pays out damages, its shareholders get lower returns, underwriters suffer losses, workers get lower wages, customers pay higher premia etc.
picmr
Avalon my darling…I was being a big old smarty pants.
Needs2know…says ask Mr. Zambezi he knows I lean so far to the left I almost fall over.
Needs2Know:
Sorry, my blond roots were showing.
:o
Not a problem my fair haired boy. My admiration for you runs deeper than that. Wouldn’t matter to me if you had no hair.
Needs2know